Each year U.S. demand for solar energy increases, even during the recent recession. Demand comes from all sectors: residential markets, driven by residential users’ interest in going green and the availability of residential tax credits; as well as commercial-scale and utility-scale green energy programs.

The residential market is expected to continue increasing, especially as new financing models become more common. For example, leases and power purchase agreements allow residential consumers to consume solar energy without the large up-front costs associated with installing a solar array. Obviously, this type of financing model requires the residential consumer’s utility to offer such options, but some markets are seeing demand for such arrangements. Further, technological development in the portability of solar arrays would allow homeowners to move their PV panels with them to a new home when relocating. This would give owners greater confidence that they’d be able to gain the full value from their investments, even if they sell their home to a buyer who doesn’t value solar energy as highly as they do.

Commercial-scale projects are becoming increasingly common as businesses strive to appear more socially responsible by building or retrofitting existing structures with green technology, including solar panels. More business are also pursing LEED certification and scoring points through the installation of solar panels on buildings and parking structures.

But the real growth over the next few years will most likely be in utility-scale solar projects, largely due to state mandated renewable portfolio standards (RPS). With the tight financing market, project developers are struggling to meet demand from utility companies, which are required to meet state RPS policies (see “Solar Power and State Mandates”) . As utility-scale projects expand, they face numerous obstacles, including complexities in project financing, state and federal funding sources, and debt and private equity.

Green Project Finance

The demand for utility-scale solar power projects has resulted in a fair number of projects entering the development phase. According to the Solar Energy Industries Association, utility-scale projects currently under development total 23,488 MW—including both photovoltaic (PV) and thermal concentrated solar power (CSP). When compared to the 666 MW in operation and the 712 MW under construction, one might say that the future of utility-scale projects looks bright. But that isn’t the entire picture. Large-scale projects cost large amounts of money, and financing, whether from the debt or equity markets, is hard to come by as the economy recovers.

The installed cost of solar—PV and CSP—has decreased significantly over the last decade. That alone has proved insufficient. It’s the government incentives that make these projects attractive to developers, investors and lenders. Recent research in the U.S. and abroad reach the same conclusion: solar projects that don’t receive government subsidies are unable to compete with combined-cycle gas turbine (CCGT) plants.

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